Irving gets margin rise prior to hearing

A settlement has been reached in an Irving Oil application to increase the wholesale gas margin, days before a scheduled hearing.

The agreement would see Irving’s margin on gasoline and diesel it sells to retailers increase to 6.65 cents a litre, up from six cents, which has been the margin since 2006, when gasoline price regulation was introduced in Nova Scotia.

The company, which owns a Saint John, N.B., refinery, had asked the provincial Utility and Review Board in May to hike the margin to 7.3 cents.

A three-day hearing into the original request begins today, although it is unknown if it will run at the scheduled time in light of the agreement.

Irving would like to see the new margin effective “no later” than Dec. 1.

“We believe the position set out in the settlement agreement is consistent with the regulatory regime governing petroleum product pricing in the province, and after a period of six years, it is necessary to increase the wholesale margin to try and keep pace with cost increases during that time,” the company said in an opening statement it was expected to give at Wednesday’s hearing.

The statement was published on the board’s website.

When the company submitted its application in May, it cited a jump in working capital costs, freight costs, terminal operations and capital expenditures and government-mandated capital investments as factors in its request to increase the margin.

The initial 1.3 cent increase that was requested was broken down to 0.94 cents for cost increases and 0.36 cents for “anticipated future cost increases that would not be recovered due to regulatory lag.”

In a board-commissioned report, KPMG LLP recommended the margin increase to 6.35 cents.

Given the evidence submitted by all parties, the settlement is a “fair way” to resolve the issue, said Halifax lawyer David Roberts, a provincially appointed consumer advocate and agreement signatory.

“I didn’t like the idea of a component that would offset future cost increases because I think, at this stage, it’s certainly too speculative, and the agreement that we reached dropped that and also sort of came down in the middle in between the two positions of the board consultant and Irving as to what the actual cost increases had been since 2006,” he said in an interview.

The result was the best possible result for consumers, Roberts said.

“There’s no question that there have been increases in costs associated with wholesaling since 2006 which have eaten into the wholesale margin, and so it’s likely the board would have awarded some increase.”

They are both intervenors in the matter, but it is unclear if they will request similar increases in their margin. Representatives from each company could not be reached Tuesday.

Cape Breton’s Caper Gas, a division of Boudreau’s Fuels Ltd., had applied for a 1.08 cent a litre increase, but withdrew its application in August.

According to Irving’s opening statement, a proposed technical conference is being touted as a way for all parties “to address anticipated future cost increases in a more efficient manner than solely relying upon one or more wholesalers making a time-consuming and expensive application to the board, be this by way of a possible formulaic adjustment in relation to certain cost elements or otherwise.”